Hitachi/UK nuclear: atomic conglomerate

Hitachi may soon decide the fate of proposed UK nuclear power plant, Wylfa Newydd, according to a report in Japan’s Mainichi newspaper. The troubled project has been suspended since the start of last year. The 110-year-old Japanese conglomerate has been struggling to fund its part of the project. It should do its shareholders a favour by pulling out.

The UK government last year offered to take a one-third equity stake and help finance the £20bn nuclear power plant. Fearing that would not be enough, Hitachi had been on the search for more.

Since then, the company’s financial position has deteriorated. Even before coronavirus, total debt had grown 48 per cent in the year to March. The pandemic hit sales and operations, prompting the group to add more debt. If you adjust for cash, Hitachi is not yet in dire straits, which is why it should forget about Wylfa Newydd.

For the UK, Hitachi’s exit could mean more involvement from Chinese-state backed China General Nuclear Power Group, a funding partner in another local plant. Given frosty relations between the west and China, dropping the project altogether would be another alternative.

Hitachi is undergoing a slow, costly transformation from an ageing hardware maker into a services business. Its energy business, once a leading light of the business, has become its biggest blot on operating profits, even though it accounts for just 4 per cent of total revenue.

Its share price is off about a fifth this year. Hitachi has tried to right itself, even becoming a model for Japanese corporate governance. But more than a decade of restructuring and acquisitions have done little for its valuation. It has persistently traded a fifth or more below peers NEC and Mitsubishi Electric on most book value and earnings ratios.

The conglomerate’s businesses range from artillery support vehicles to TV cables. That wide spread has previously attracted attention from activists such as Elliott Management. When Hitachi is ready for a break-up, its underperforming energy business should be the first to go.

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